Overview 


When it comes to getting approved for credit, lenders take a number of factors into consideration. One of the most important is your credit score, which is based on the Four Cs of credit: character, capacity, collateral, and conditions. Character refers to your reputation for paying bills on time, while collateral refers to assets that can be used to secure a loan. Conditions refer to external factors that can affect your ability to repay a loan, such as the state of the economy. Capacity, on the other hand, has to do with your earning potential and available cash.

which two of the four cs of credit have to do with earning potential and available cash


Capacity is made up of two of the Four Cs of credit: income and debt-to-income ratio. Income refers to your earnings from employment or other sources of income, while debt-to-income ratio is a comparison of your monthly debt payments to your monthly income. This ratio helps lenders determine how much of your income is already tied up in debt, and how much is available to cover new loan payments.


Your income is an important factor in determining your creditworthiness. Lenders want to see that you have a stable source of income that will allow you to repay your debts. If you have a high income and low debt-to-income ratio, lenders will be more likely to approve you for credit.


Your available cash is also an important factor in your capacity to repay a loan. Lenders want to see that you have enough cash on hand to cover your expenses, including loan payments. They may look at your bank account balances, savings accounts, and other assets to determine how much cash you have available.


Together, income and debt-to-income ratio give lenders a good idea of your capacity to repay a loan. If you have a high income and low debt-to-income ratio, you are likely to be approved for credit. On the other hand, if you have a low income and high debt-to-income ratio, lenders may be hesitant to approve you for credit.


In addition to income and debt-to-income ratio, lenders also look at other factors when evaluating your capacity to repay a loan. They may consider your employment history, job stability, and other sources of income. They may also look at your credit history to see how well you have managed debt in the past.


In conclusion, when it comes to getting approved for credit, your capacity to repay a loan is an important factor. Capacity is made up of two of the Four Cs of credit: income and debt-to-income ratio. Lenders want to see that you have a stable source of income and enough available cash to cover your expenses, including loan payments. If you have a high income and low debt-to-income ratio, you are likely to be approved for credit. However, if you have a low income and high debt-to-income ratio, lenders may be hesitant to approve you for credit. It's important to keep these factors in mind when applying for credit and to work on improving your income and reducing your debt-to-income ratio if needed.